SHCIL has declared an unprecedented dividend of 900%. What is the reason behind this lavish payout?

Stock Holding Corp of India Ltd (SHCIL) has announced a staggering cash dividend of 900%. According to informed sources, this entire dividend is the amount SHCIL earned by selling its 2% stake in the National Stock Exchange (NSE). Officials from SHCIL were not immediately available for comments. SHCIL has appointed MXV Consulting, management consultants to deploy the windfall cash, but in the absence of a firm business plan for profitable deployment, SHCIL decided to pay out the money. SHCIL has realised almost Rs250 crore as staggered divestment of a part of its NSE stake via IDBI Capital Markets.
This is a bonanza for its shareholders IDBI Bank, ICICI Bank, IFCI, administrator of the specified undertaking of the Unit Trust of India, LIC, GIC and the other four general insurance companies. SHCIL sold its 2% shares in NSE through IDBI Capital Markets for about Rs250 crore, thus reducing its stake to 5%. Earlier, SHCIL had declared an interim dividend of 130%, but soon after the stake sale, it announced a whopping dividend of 900%. Last year, it had declared a dividend of 50%.

Interestingly, SHCIL's paid-up capital is just Rs21.10 crore. For FY07 and FY08, SHCIL had declared a dividend of 50% and earnings per share of Rs23.17 and Rs32.85, respectively. However, for FY09, its dividend went up to a staggering 165% with EPS of Rs31.52.

SHCIL achieved a profit before tax (PBT) of over Rs101 crore for the year to end-March 2008 thanks to a massive bull run. Its managing director and chief executive RC Razdan had announced a target to double the PBT for the year ending in March 2009. But, it was able to achieve a PBT of just Rs90.20 crore as against a target of Rs200 crore. This was covered up by paying an interim dividend of 130% and a final dividend of 35%, taking the total dividend for FY09 to 165%.

SHCIL has been deeply mired in controversy for its e-stamping project planned several years ago. It has been under investigation by the Serious Frauds Office for various shenanigans. Insiders say that this unprecedented dividend payout is given to favour the guilty and secure the protection of its shareholding institutions. After the huge dividend payout, charges against SHCIL will turn stale. If this is true, then shouldn't the Ministry of Corporate Affairs act on the SFIO report, pending since ages?

The story of SHCIL does not end here. Even market regulator Securities and Exchange Board of India (SEBI) has not renewed SHCIL's custodial license that expired on 31 October 2009, while all other custodians got it renewed for three years.—Sucheta Dalal with Yogesh Sapkale [email protected]

AK Maheshwari

Please send me the Money Life

Monopoly position enables international behemoths Visa and MasterCard to levy exorbitant costs on client banks; a domestic payment system would be considerably cheaper

The country’s central bank, the Reserve Bank of India (RBI), is considering putting in place a domestic card payment system that would handle all debit or credit card transactions in the country. If implemented, the new system would compete against international card associations Visa and MasterCard, who have a virtual monopoly in card transactions worldwide. These two players have access to superior technology and employ stringent practices that make settlement of card transactions a breeze for banks worldwide.

This position of strength enables the two giants to demand huge fees for their services from client banks. Banks thus have to pay a high cost for associating with Visa and MasterCard. So much so that there is no alternative for banks but to accept whatever charges these two players think fit to levy for their services.
The list of service charges is quite exhaustive. Apart from transaction charges, they have a plethora of other fixed charges including annual service charges, monthly maintenance charges and quarterly charges. These are levied irrespective of whether the cardholder uses the card. The problem lies in the fact that banks cannot transfer all these charges to the customer. They have to bear the costs themselves. A senior banking official said, “These organisations are exploiting their monopoly position and technological expertise. Our current agreement requires us to unilaterally accept any future charges that may be introduced. They dictate their terms and conditions; banks don’t have any say in the matter.”

Dhimant Roy Turakhia, assistant general manager, Bank of Maharashtra said, “This is a welcome move from the RBI. If the RBI is to introduce this system, it is going to be highly economical to the bank and also to the cardholders. The charges would come down to 10%-15% of current outgo. The profitability of public sector banks will also increase and the burden will also reduce to that extent. After all, we can only pass on limited expenses to our customers.”
The most astounding fact is that Visa and MasterCard are not liable to pay a penny to the government in the form of taxes. Essentially, they are earning truckloads of revenues which are entirely tax-free. Banks are supposed to pay the service tax on behalf of Visa or MasterCard.

The RBI has already established a National Financial Switch (NFS) which handles many domestic transactions for cash withdrawal. It has been operating since the last 18 months. For the same transactions, Visa charges more than 10 times what RBI asks from banks. RBI is also looking at establishing a PoS (point of sale) switch network for routing domestic card transactions. Currently, even domestic transactions are routed through a switch located outside the country. The Visa switch lies in the US as well as Singapore. However, for this new system to work, a 24-hour fund transfer mechanism will have to be put in place. The existing National Electronic Fund Transfer (NEFT) network operates during weekdays from 9 am to 5 pm and on Saturdays from 9 am to 12 noon. The RBI is also pursuing the suggestion to extend this network to work on a 24*7 basis.